December 3, 2013 > LEGAL EYES
By Stephen F. Von Till, Attorney at Law
Q: Does the average married couple need a ÒLiving TrustÓ?
A: Yes. Generally, anyone owning a house should have a Living Trust.
The Trust avoids delay and expense of Probate Court, provides benefits to minor or disabled children, and includes provisions for management if you become disabled.
Even a modest estate hits $750,000, given Bay Area property values. If an Estate goes to Probate Court at this value (i.e., no other assets), attorney and executor fees will total $36,000. The time delay for Probate to close an estate, pay creditors, and distribute assets to heirs is easily six months to a year - sometimes more.
Such fees and time delays may be avoided by a Living Trust. The Trust keeps your Estate out of Probate Court if well-written and customized to your family.
A ÒLiving TrustÓ is like a corporation. You put your assets (home, bank accounts, etc.) into the name of your Living Trust. You are the ÒTrusteeÓ of your Trust, e.g., ÒThe Abraham Lincoln Living Trust.Ó You, as trustee, are the ÒpresidentÓ and Òsole shareholderÓ for your family Trust.
The Trust owns your assets, but you own the Trust. You have complete control of your assets. You buy, sell, and use assets without restriction.
The Trust is created in the privacy of your lawyerÕs office. No formal filing with any court is required. Your financial information is confidential, unlike the public filing of a Probate Petition.
With your lawyer, you create a governing document called a ÒTrust Declaration.Ó It dictates how the Trust (your assets) should be managed if you are disabled and how assets will be distributed after death.
After naming yourself Trustee, the document names ÒSuccessor TrusteesÓ -- usually a relative, friend, or adult child. The Successor Trustee takes over if you become disabled or upon death.
Because your assets are held by the trust, not by you personally, no Probate Court proceedings are required. The successor trustee manages the assets according to your written directions.
The Successor Trustee has access to trust assets Ð e.g., bank accounts, stocks, real estate. The Trustee has signing power for management - similar to a corporation having a new president who continues to manage the corporation
But the new TrusteeÕs power is limited by you in the trust document. Typically, you give the new Trustee only the power to gather assets and distribute to the persons named in your Trust (e.g., your children). Then the Trust terminates.
For minor children, the Trust will name your choice for guardian. You may create terms that prohibit your children from having complete access to assets at age 18. Many provide that children receive periodic payments until they reach a certain age of maturity.
For example, the Trust may authorize support during college and then lump sums at ages 25 and 30. This allows young adults to learn from financial mistakes, e.g., the $100,000 that went into the Beauty School business that tanked in 6 months.
The Probate Court is not involved with your estate if assets are entirely in Trust. Probate is avoided. Delays, attorneyÕs fees, and executor fees vanish.
DonÕt be fooled into believing that all Living Trusts are the same. A ÒJack-in-the-BoxÓ Òone size fits allÓ Living Trust is a mistake. This can lead to future lawsuits and may involve probate court to deal with contested issues.
Each Trust should be carefully tailored to meet family needs and legal requirements. Skillful drafting is essential.
A poorly designed Trust may result in law suits among heirs, in-laws, and others. I have seen entire estates liquidated to cover fees and costs, leaving nothing for heirs. The lawsuits Òate upÓ the assets that a properly drafted trust would have preserved.
Fees for drafting Trusts are quite affordable Ð less than my repair cost for air conditioning on my Õ93 Mercedes. Such fees are a wise expense considering the importance of proper documentation protecting you and your family. Fees are based on time counseling, drafting, and advising Ð each familyÕs fee is variable based on such factors.
Many attorneys offer free consultation. This allows an approximation of the legal work necessary with no obligation. Cost savings over Probate fees are considerable.
The Trust does not necessarily avoid Estate Taxes, but it gives an opportunity for planning. Tax saving devices may be considered.
There is no Federal Estate Tax in 2013 for an estate at $5,000,000 or less. Above that amount, the rate is 40% on the excess. Your estate may include real estate, stocks, life insurance, and other assets.
Tax laws change. Rates change and exemption amounts change. In 1999, the exemption amount was $650,000. The rate has been as high as 55%.
The Lesson: DonÕt put off until 2014 what you should do today. Make a Living Trust now. If you fail to plan your estate, you may not live to regret it.